Ken McElroy: 2008 Prices Return for These Properties

My guests today own more than 10,000 units and built one of the most recognized brands in real estate investing. But they each started from a single property, just like everyone else. Ken and De'Neil McElroy have invested through every kind of market cycle of the last three decades. We're talking about recessions, booms, rate spikes. They have seen it all from individual condos to hundreds of multifamily units. So I want to know what are they doing in today's market? Are they still buying and how do they stay profitable when everyone else is sitting on the sidelines? Today, Ken and De'Neil are breaking down their market outlook, the strategies they're using right now, and their advice for real estate investors, whether you're looking for your first property or you're trying to scale up to hundreds of units. If you want to know how experienced operators navigate uncertainty, this is The Conversation. What's up, everyone? I'm Dave Meyer, Chief Investment Officer at BiggerPockets. And this is a very special episode because I'm joined by Ken and De'Neil McElroy, where you could say I am joining them because as you can see, I'm not at home. We are recording this live from their studio in Scottsdale. Let's not wait any more. Let's jump in with Ken and De'Neil. Ken, De'Neil, welcome back to The BiggerPockets podcast. Thanks for being here. It's been a minute. Yeah. I'm excited. And De'Neil, it's your first time? It is my first time. Well, welcome. It's long overdue. Sorry about that. No worries. Thanks for being here. Well, I think we should do a refresh then. Since Ken, it's been a while, De'Neil, your first time. De'Neil, maybe just tell us a little bit about yourself, your background in real estate. Yeah. So I'm a real estate investor. I own five single family units and I started investing in real estate in 2016. My first investment was a property that I lived in and I was actually met Ken when I was looking to convert from a condo to a home for myself. And he said, why don't you run the condo and buy a home where I was planning on selling the condo and then buying a home. And I was resistant, but I did it. And that's how I started in real estate investing. How'd you convince her? It happens, right? I get it. Yeah, absolutely. You have all this equity and you're like, I need it to buy whatever next. And I'm like, no, no, no, no. Let's use it to leverage to get a second one and a third one and fourth one. That's the model, right? 100%. I mean, I talk about this on the show a lot. It's probably, I think the biggest mistake I made early in my investing career. I started building equity in my first deal and I felt like that was like my life savings. Yeah. It was like my fallback option, my nest egg. Like six years in, I was like, man, I could have 10 units by now if I had just done it strategically. But it takes a while to learn those things. And you also have to have a little bit of trust, right? And education and all that stuff to be able to pull that off. And fast forwarded worked out. Yeah, fast forwarded worked out. You know, I don't do condo investing anymore, but on single family, I think it's great. Yeah. Well, good for you. It's awesome. Thank you for joining us. And Ken, maybe tell us a little bit, remind our audience about your background. Sure, sure. So I started in property management right out of college, managing properties for collecting rent and cleaning units and painting units and all that kind of stuff. And that's actually what I learned the most, right? Like as you do on the operation side. So that gave me the courage to buy. I started buying about 10 years later, small stuff. Then I started scaling into the bigger stuff. So now we have about 10,000 units, mostly multifamily. We're a builder, buyer, rehab, value add, ground up construction kind of do it all. But we're generally just staying in the multifamily lane. Let's just start there. Ken, I mean, it's been a rough couple of years for multifamily, for most operators. Like, how are you feeling about the market right now? Well, I'm excited. It's, you know, I made the most moves financially, strategically in 08. So for me, this is what I went through in 08. Like now I'm 15 years more wise, a lot more deals. And this is an incredible opportunity that we're getting ready for. So I'm very excited. What did you see in 08? Like what were the hard lessons that you learned there? And how do you think this is different? So what we had at that point was we had, I call it a Main Street crash, right? It was a single family Main Street crash. And so we had a big repricing at 3, 4 million units on the MLS and it just brought all the prices down. So it's a temporary crash on the single family. But then what do those people do? They move over to multi. So when you move out of a single family, you move into the rental side. So we went from 69.2% home ownership under Obama to about 65. So every percent just put more pressure on the other side of the equation or the rental side. So everybody that started in the multi-business after that, they looked like they were rock stars. But really it was just a shift from single over to multi. And so that kind of created that run. This is really different. So this we don't have a single family crash in my opinion. We're undersupplied leading up to 07. We were building a million and a half homes, let's say a year. After that, we were building 500 to 700,000. So that's where the shortage came from. It came from that, you know, call it the healing period, right? There's so much inventory. Why would you build when you have so much on the MLS already? So this is extremely different where you have, depending on who you look at, Realtor, Zillow, Fannie, Freddie, they all have different reports on this. 3, 4, 5 million short, let's say, whatever the number is. That's a little bit different. So you don't have a single family drop. But what you have is you have an interest rate issue here today. You know, so people are used to these low rates. For me, this is normal. Yeah. Rates are normal. What's not normal are the values. Right. So the prices went up. So now that's resetting. You said that you're excited about this, but also prices have been resetting. Why is it taking so long? I guess like for me, I've been waiting for multifamily prices to come down. And they have 15, 20% nationally. But I feel like the distress should already be here more than it is. And you don't see inventory flooding the market. So why is it taking so long for the multifamily market to get back to some equilibrium? And when are we going to see transaction volume start to pick up? So we're starting to see it now, but I'll tell you what happens. There's a slow unwinding that happens. You know, these are all partnerships, right? So there's a general partner and a limited partner with. And so the first thing that gets exposed are the people that don't know how to manage. So the first kind of trance is the people where we, you know, they're 50, 30, 40% occupied. Expenses are out of control. They didn't manage your cap backs or anything like that. That was kind of the first one. Those are the obvious ones. But the real issue, as you pointed out earlier, is that people's loans are maturing and or those could be. They had floaters or whatever they had. That's all creating the pain. So the irony is you might have a property that is actually 95, 96, 97% occupied. They actually might be running the expenses and the revenue not far from what the business plan said, but the biggest expense, which is debt, you know, makes it negative. The first thing is the partnership kind of tries to solve it, right? And they try to solve it internally through cash calls and all that stuff. And then they try to solve it with the lender. Then at some point, the lender's got to rip the bandaid off because if I have a $20 million loan and your properties were 20, I actually don't need you, right? That's right. You know, since I'm like, well, I'm going to get rid of Dave, take the property back and I'm going to try to sell it for 20, which is my loan. So you have all those scenarios going on. So that's why it just takes a while. Yeah. There's like a forcing mechanism where the lenders are fed up, I guess. Yeah. They're not seeing the risk on the wall and they're going to just force these issues. And I want to get back to that because I want to talk to you both about private credit. But Danelle, tell us a little bit about what you're seeing on the single family market. Is it similar to what Ken's talking about in multifamily? No, single family is different because single family people are locked into super low rates. So there's not a lot of distress at this time in the single family market, at least in the Phoenix area. What I'm seeing a lot of is a lot of sellers delisting because they can't sell for what they want to sell for. And we're seeing some really good deals, but a lot of those are coming from flippers that are stuck in a deal that are in hard money. And also people that got into Airbnb because when people got into Airbnb, you know, they thought, oh, this property is going to make, you know, 12, $15,000 a month. And Airbnb is oversupplied and softening. So now they're not making that and their mortgages are six, seven, $8,000. They're just need to stop the bleeding too. And in fact, I have one right now that's a short sale because of an Airbnb. So that is really happening a lot in this market. But as far as your average seller, I mean, I'm talking to them all the time. It's like, yeah, I'm going to list this property and if it doesn't sell, then we're just not going to move. Right. Well, it's so interesting what Ken was talking about in 2008, right? People who are in financial distress would move to multifamily. A lot of times now renting isn't even cheaper if you have a two or 3% mortgage. So even if people are having trouble, they just stay put. And it's just, I don't think we've ever seen a cycle like this really in residential before. Yeah. And that's interesting too, because the difference in a way is people didn't put any money down either. So it's like, if I don't put any money down, it's like, yeah, it'll destroy my credit for a few years, but I'm just going to walk away from this. Well, now people have put down 5, 10, 20% of the average single family home, like a starter home in Phoenix is in the fours, maybe fives. So, you put down a significant amount of money. They're less likely to walk plus to your point. It's not going to be cheaper to rent. So like it doesn't really solve much and it's not like they have a ton of equity if they just bought in the last few years. So I just am not seeing a lot of distress on. I know there is some distress, you know, but just not a ton. Yeah. Well, I mean, that's good. I feel like for society, right? Like, no, it's good. It's like a lot of stress in the housing market for ordinary people. But does this mean you're not finding deals or like how do you? I'm finding great deals. Oh, really? Yeah. I'm finding great deals for clients and for myself. I just closed on something last week because what I have found is the people that have to sell have to negotiate. So I'm not really seeing, you know, I get a lot of buyers that are like, I don't want to buy yet. I want to wait for prices to come down. I'm like, you don't wait. You negotiate the price. Yeah, you have to find the right sellers that have to sell. But if you can find that, then, you know, it's been really working out. And to your point, you know, I'm still finding cash flowing deals. You just have to put more doubt. Right. Yeah. Everything you found. Yeah. Yeah. Exactly. So tell them about the deal. It's a four bedroom house for 500 grand. Yep. I found a four bedroom house and I'm renting it for 2,900 a month. And I actually think I could have got more, but, you know, I just bought it. So I want to get someone in right away. I think I could have got like 31 or, you know, because I had so much interest at 29. But at the end of the day, you know, people like to wait to buy because they're uncertain about what's going to happen with the market. But the way that I look at it is like, I bought a deal three years ago. You know, it's worth a little less than I bought, probably like 10 grand less than I bought it for. But in the past three years, I've collected over $100,000 in rent. Yeah. So I mean, you have to offset that to some degree, you know, like you can wait, but you also don't know when the bottom of the market is. So I want to talk to you about this and how to navigate it, but we got to take one quick break. We'll be right back. Most investors focus on returns. But the real lever is what you keep after taxes and how flexible your capital is along the way. That's where Freck takes a different approach with direct indexing. You're not just tracking the market. You're actively harvesting losses across your portfolio to help offset gains and reduce your tax burden over time. But here's where it gets interesting. Instead of selling assets when you need capital, Freck also offers a PLOC, which is a portfolio line of credit. So you can borrow against your investments without triggering taxes or disrupting your strategy with no credit check and no strict monthly payment schedule. So you stay invested, you stay tax aware and still have access to liquidity when opportunities show up. If you want a more efficient way to manage both taxes and access to capital, check out Freck and schedule a free portfolio analysis. There are two kinds of real estate investors. Those who have reviewed their insurance and those who think that they have most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals or LLC held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors, understanding portfolios, risk at scale and cash flow protection. One claim can erase years of returns. If you own a rental property, don't assume you're covered. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy and one of the smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen pipes, icy walkways and seasonal wear and tear can increase the likelihood of claims. And traditional insurance companies aren't always built to handle these claims quickly or smoothly. That's why more real estate investors are turning to steadily. They focus exclusively on landlords, whether it's a single family rental, a burr, builders risk policy or midterm holiday guests. You get fast quotes, flexible coverage and protection for property damage, liability and even loss of rental income. Now is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. Most investors spend all their time talking about their high level returns, but that's not the number that actually matters. What actually matters is what you keep after taxes and that's where multifamily real estate quietly stands out. With built-in advantages like depreciation, the right deals can generate steady cash flow while reducing the tax drag. BAM Capital structures its multifamily investments around those fundamentals, pairing tax efficiency with disciplined operators and a long-term approach. This isn't about chasing hype or guessing market timing. It's about building durable tax-aware wealth over time. Learn more at biggerpockets.com slash BAM. My home and I have a very one-sided relationship. I work hard to pay for it and it mostly just sits there. It's got no side hustle, no part-time gig, just four walls living its best life all on covering the mortgage. Here's something I recently learned. When you're away from home, it doesn't actually have to sit empty. You can list your space on Airbnb and now there's something called the Co-host Network, which makes it a lot easier to do and takes a lot of the pressure off getting started. A Co-host is a vetted local with hosting experience who can help take care of all the details. They can help set up your listing, manage reservations, message guests, and even provide on-site support. Hosting stays stress-free and manageable. Instead of your home just sitting around waiting for you to come back, it could actually help bring in a little extra income while you're away, whether you're traveling for work, visiting family, or just taking a vacation. That feels like a much healthier relationship, honestly. Find a Co-host at Airbnb.com slash host. Welcome back to the Bigger Pockets podcast. I'm here with Ken and Danil McElroy. We're talking about multifamily, single-family market, how things have changed since 2008. Let's start talking about opportunity because I think that's what people are excited about right now is that pricing is getting a little bit better, affordability is getting a little bit better. Ken, we were talking, kind of joking before that, the situation we're in right now, not great if you're holding assets, good for buying assets, but you do both. How are you sort of thinking about portfolio-level strategy? Sure. I think it's important that I'm a fixed rate guy. I think you should always hedge your biggest expense. That's your biggest expense. Fix it. And make sure you cash flows day one, period. That's been my philosophy from day one. That's why we never got any trouble. I don't buy anything with an expectation that rates are going down, ever. I always actually think they're going up no matter what. That's where my head is. If they go down great, but if they go up, then I'm hedging. Our whole portfolio, the other thing is, we're under 60% loan to value on our whole company. We have some in the 30s, some in the 40s, some in the 50s. We have a few in the 70s, but not many. I like loan to value and I like fixed. Then we have our rent house management. When I look at the blood in the streets right now, and it's a lot. What I see are I find low occupancy, I find poor operators, I find high expenses, I find stress, I find high expensive debt, all of that stuff disrupts multi. So I'll just give you a couple examples. Two weeks ago, we looked at a deal in Texas. I won't say what city. 5% occupied. What? What class? 200s. B. 278 units. Now, here's the interesting thing. It was worth $45 million in 2021. So it's like a B- minus, but they had dumped like $5, $6 million of rehab money into it. It's got like $28, $29 million loan on it. We just made an offer for $8 million to the lender. No, it's a lender. So now, am I seeing those deals every week? I am not. But I just looked at another deal in Kansas City, very poor occupancy. So what you have is you have this stress happening, and we're dealing with the people that own the debt. And usually it's coming from a broker. Sometimes the syndicator's involved, sometimes not. So I think we're at the beginning of, and we might not get those two. Certainly we made offers on both, but this is what I'm seeing. I'm not talking about 92, 88, 85% stuff. I'm talking about deep, deep discounts. I'm talking about 2008 prices. That's unbelievable. Yeah. I imagine it would be very difficult to resist something like that. Well, when we looked at that, called the $8 million offer, we figured that it was going to be another $8 million to fix it and the negative carry and all that stuff. We're trying to stay under $20 million all in, let's say. But then stabilized, it should be in the mid-30s. So a good deal. Amazing. Potentially, if we can pull it off. But those are the things that we're seeing. Well, I want to just sort of big picture this for the audience here, because what you're saying is, yeah, you're taking some paper losses right now, and just for everyone, that just means the value of your properties sometimes goes down on paper. You don't realize those losses unless you sell them. It sounds like you're basically able to say, yeah, that stinks. It's not ideal, but you've just bought fundamentally sound properties, that cash flow with fixed rate debt. And so, yeah, it's not as fun to look at your net worth statement probably, but you're still cash flowing, you're not worried about them, you're just stressing them. And that allows you to move on to opportunity and to see this time period as an opportunity to buy rather than freaking out about real deals. Cash flow is way down. Yeah. No question. It's higher, higher vacancy, concessions, expenses are up, all of that. You know, and net worth for sure took a hit, but that's what a cycle is. Exactly. You know, you can't time the market. And I think that a lot of, especially small investors or maybe people that haven't invested yet, you know, they don't want to make a mistake. So they try to time the market. But realistically, what Ken was saying, I don't, of course, everyone would love to buy a good deal that they hit right at the bottom. And then it just went up. But at the end of the day, if it's cash flowing, it's really just your ego, like you said, like how much you're worth. Because at the end of the day, like the rent are pretty stable and you're cash flowing the deal. So like who cares if you bought it now and then if you would have waited a year, it would have been worth less. Like you don't really hear too many people saying, Oh, you know, I bought in, you know, 2018, I wish I would have waited until prices, you know, like cause they gained all that equity. And even now people that bought in 2010, you're not hearing them complaining because they're in the money too. So if you hold something long enough because of inflation, it's going to go up. It's just, you can't be forced to sell it. Yeah, exactly. That's the problem. That is the, that is the number one way you lose money in real estate being for sell when you don't want to. People are just getting into this or the average homeowner who often tries to dissuade their friend from investing in real estate. I think what they miss is that market appreciation, just like waiting for macroeconomic tailwinds to boost up your property price is one way you make money from real estate. And you, if you wait, you miss out on all of those other things. I'm not saying to go out and buy anything you should do. You should be diligent and buy good deals, but being, you're still making money. Even if you're taking a paper loss for a couple of years, right? Like I'm sure even with your vacancy and cash flow down, like still paying down your debt, still making cash flow on your single families or your multi families, right? Yeah. You don't really think about it. You know, you're, you just look for the next opportunity. You look for the next thing that cash flows. Like you don't want to buy something that doesn't cash flow. I made that mistake one time. Um, but as long as you're cash flowing, it really doesn't matter. This is music to my ears. This is what we talk about all the time. Like I like appreciation, but would never buy something without cash flow. It doesn't make any sense. Otherwise you're just guessing. I don't know. It's just spec, it's pure speculation. So Danyl, tell us how you're thinking about portfolio strategy. Cause you're in a situation, I think a lot of people are facing, which is you like residential, it's stable, but prices are weird. You know, like you don't really know, or you know, go down a little bit this year, maybe up a little bit. That's why people are tempted to wait. So how are you thinking through that? Well, there's a couple of things. One, I had three single family homes and two condos. I 10 31 both condos to single family homes in the last year. The reason I did this is cause the HOA prices were just killing me. And I'm like, you know, I need to move this into something that's a better value. Plus all of the classes that are being built are a direct competition to those condos. So my rent was going down and all my single family homes, it really wasn't. So I made that transition into all single family. Um, the other thing that I'm looking at is sellers right now are in a tough situation and they're more likely to look at creative options and they're more likely to negotiate to a lower price. So I'm myself and my buyers, I'm having us look at, okay, at what price does this need to cash flow and how does this work? You know, at what number could we buy to make this cash flow? And then you negotiate that price or you offer creative financing and you're going to get a hundred noes, but when you get that, yes, is when the deal works. Building up that thick skin to get rejected a little bit. Oh yeah. And just knowing you're going to have to, like, you know, I work with buyers sometimes and they fall in love with the house. I'm like, you can't fall in love with it because the number they have to work. You know, you have to be a little bit indifferent. You can fall in love with it after the inspection and after the offers. Yeah. Once you, once you already own it, fall in love with it, but not until that. Yeah. That makes sense. And is it really a hundred to one? Like, do you feel like it's really that many offers you have to make to get a deal right now? It's a lot. Like I think you can look for things. Like I look for Airbnb's because I know that those, you know, are going to be more motivated to sell. I look for flips because I know those are going to be more motivated to sell. Um, but yeah, I mean, I think that you do have to make a lot of offers and you have to look at a lot of properties. And you know, it's one of those things you have to put more work into being a buyer right now to get a deal that pencils, but it's very possible. Ken on the multifamily side, you mentioned Texas and Kansas city. Yeah. Like what's your buy box right now? Is this anywhere? No, we're actually very, very strategic. Uh, we follow migration patterns, uh, work, population growth. Um, building permits, uh, walkability, uh, school districts, all of it. You know, so we like markets that are progressive somehow. Right. I'm not talking about politically either, you know, but, but, uh, that has been a factor too, you know, people have left because of those kinds of things. But, um, you know, it's really simple without people, real estate doesn't work. Like, like it's so simple. Right. They go to the end of the earth or they go to the edge of town because it's cheap and they can't figure out why they can't get a tenant and all that stuff. So, you know, you're better off to buy in areas that are growing progressively somehow, whatever it might be, um, and focus on that. And so, you know, there are very specific markets that we like. Um, and, um, you know, even when I mentioned Kansas city, but there's, there's not very many areas in Kansas city we would buy, but there are a couple. Even with them, you know what I mean? And, and the same thing in Tucson, the same thing in Phoenix and, you know, the same thing in Dallas and so, and on and on and on. You, you have areas like North Dallas that's incredibly progressive. Yeah. You know, Richardson, Frisco, Carrollton, you know, you're going to have really good growth and that's kind of the path of progress. So those are the things we look at. Danille, how is your buy box shifted over time and how are you adjusting it at all based on just market conditions? I'd say my buy box is right around 500,000 in North Phoenix or Scottsdale because I just see that those are passive growth. Tenants want to be there. I've never had any issues, you know, any vacancies really. And I'm getting about the same rent I've gotten from the high. Like I might be down a hundred bucks a month, but it's pretty darn close. That's great. Yeah. And so those are the deals you're starting to see more of. You want, yeah, I'm not really seeing them at five, but I'm seeing them at like 550 and you might be able to, you know, negotiate closer to that 500 mark. I think what might be interesting though is you could tell Dave the, so Danille had an imputed equity issue, which meant that she had a lot of equity in her condo, but it wasn't cash flowing a lot. Right. Yeah. Cause they ate away was $400. So she's sitting at, so, so, so a lot of times people don't look at their equity, but it's not actually producing. So she's, even though she had a low fixed mortgage, she goes, you know, I'm going to, I'm going to, but all of a sudden she's turned that into a big cash flow or real cash. Yeah. Yeah. I'm cash flowing 1600 a month on this property. So that's really great. But it, but on the other one, I was only cash flowing $700 because of the HOA cost, you know, and also like I said, the downward pressure on condo rents due to multifamily building. Two things I want to reinforce here. One, thinking about your competition, I think is something a lot of real estate investors miss at front. They're like, this is a great property. Might be, there might be 300 of them right next door and two, and if they face some financial distress, they're going to be quicker to lower rents than you are. And that's going to impact you. The other thing that I want to mention is talking about return on equity and measuring the efficiency of your deals. A lot of people, when they get in the way, I just want to get 500 bucks a month in cash flow. Probably two bucks a month is great. If you're invested 50, you know, 15 K into that property, if you invested a million dollars into that property, not so good, which is why we always talk about thinking about either cash on cash return, or ideally, when we really like is return on equity, as Ken was mentioning. It's a good problem to have. Like if you build up too much equity in your, in your deal, that your cash flow is no longer efficient. It is a problem. It's a good one because you just made a lot of equity, but it is something you should address. And you do that either by doing a 10 31 exchange, selling and optimizing, taking out a line of credit, whatever it is that you're doing, but trying to access that equity to move it into another deal where you can do better, which it sounds like you're able to do right now. Well, what was interesting is when Ken and I first started talking about this, because about a year ago, I'm like, I think I need to sell one of my condos just because these HOA fees. And I was going to sell the one that I just sold because I had debt on it where the other one was free and clear. And I was cash flowing more because I didn't owe anything on it. And Ken made me stop and think and say, okay, I know you're making more on this one over here, but you have so much more money tied up over here. So then we actually did the math and come to find out because I was sitting on this 2.8% mortgage. My return on equity was so much better on this one that had the loan. And so that's what prompted me to sell the other condo first. And to your point, like I never would have looked at that. So I think some people are like, Oh, this is paid off. I'm making all this money, but are you really making all this money? Yeah. Not efficiently. Right. You know, and that's, I mean, it sounds like a little difference, but difference between, you know, a 10% return on equity and even 12% return on equity, you compound that for an investing career. It's millions of dollars probably. And those kinds of optimizations, it doesn't, you know, you do it immediately on your first deal, but as you grow as an investor, this is one of the key skills being able to optimize trade up, trade out. You really got to learn how to do it. But it's, I think it's the fun part. It is. I think it's like where you get to like tingle a little bit. Holy. Chess pieces around is the fun part. It's not a bad problem to have, you know, I always thought that I would be a buy and hold, never sell anything, you know, just keep, and then you have to really start looking at your portfolio. And it's been really fun to your point to 10 31, some of these deals into better deals. Yeah. Absolutely. All right, everyone, we've got to take one quick break. We'll be back with Danil and Ken right after this. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multifamily real estate offers structural advantages. Many investors are overlooking, including depreciation that can help offset taxable income while cash flow continues. BAM Capital builds its investment with that reality in mind. They're focused on solid operators, tax efficiency and long-term performance. For investors who want real estate exposure without being landlords and who care about consistency over hype, this is a smarter way to allocate capital. Learn more at biggerpockets.com. If my house had a resume, it would probably say great at structure and not much else. I'm the one paying the mortgage. My house mostly just stands there looking supportive. When you're away, it doesn't actually have to sit empty though. You can list your space on Airbnb. And now Airbnb has something called the co-host network, which makes it a lot easier to do. A co-host is a local experience host who can help manage all the details. So hosting stays stress-free and manageable. So instead of your home just sitting there while you're away, it could actually help bring in a little extra income. Find a co-host at Airbnb.com slash host. We all joke that rentals are passive, but if you're spending nights matching receipts or guessing what a property earned last month, that's not passive at all. Baselain fixes that part of landlord, the financial chaos. They're banking and AI bookkeeping system automatically tags every transaction, updates cash flow insights in real time and builds the reports you need for tax season. You can even automate transfers and move money around without paying wire fees. It's just cleaner. Sign up at baselain.com slash BP and get a hundred dollar bonus. Baselain is a financial technology company and not a bank banking services provided by thread bank member FDIC. People love to call real estate passive income, which is interesting because most of the investors I know are very busy, busy finding deals, busy managing teams, busy worrying they pick the wrong market. Rent to retirement flips that model. They help investors by turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management and the details. So you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing and their interest rates as low as 3.75%. They've been trusted partners with bigger pockets for over a decade. And if you want to learn more, visit biggerpockets.com slash retirement. Okay, we're going to shift gears for a minute to cover something important, especially for new landlords. The shows often talk about getting stuck doing everything ourselves and the cost of sweat equity. The key question is simple. Is my time better spent elsewhere? I use a tool that cuts down on a lot of landlord hassles and the wild part is it's just $12 a month. It handles rental screenings, rent collection, maintenance requests and accounting all in one platform via a mobile app or desktop. It saves me time and tenant communication and keeps me organized for tax season. It's called rent ready. And you can sign up for a six month plan for just $1 with promo code BP 2025. Pro users get it for free because we believe in it. Just sign in through your pro account to get started. Rent ready helps ensure on time rent with auto reminders, keeps communication professional and lets you post listings to multiple sites. Check it out at rent ready.com slash bigger pockets. That's rent. R E D I dot com slash bigger pockets. Welcome back to the bigger pockets podcast. I'm here with Danil and Ken McElroy. Let's jump back in. All right. So let's let's talk some advice for our investors. Ken, you were talking about deals you're seeing them, but lenders are bringing you deals from your hard earned experience and reputation. But how does like an average investor who's trying to get into multi family and take advantage of opportunities in the market do that? I think it's going to be hard right now. Um, just to be clear. So what does a lender look for during times of distress? And I think that's the issue. So by the way, you can do this, but the very first thing that they look for is I have, I'm a lender. I have a problem and I'm going to sell something to Dave. I can Dave pull it off. Period. Yeah. It's not if you have the money, right? Like nobody cares about that right now. Cause everyone has the money, right? You're going to buy everyone can buy a distress deal. The issue is, do you have the team? Do you have the experience? Can you pull it off? And so I'll give you a really good example. I had a, one of the bigger banks in the country had a 680 unit building in, in San Antonio that I bought from them directly from the bank. So the bank took a write down, but the thing was 30% occupied, almost 200 people living there. So obviously you couldn't pay its bills. Couldn't pay. So, so now what does the bank look at? The bank's looking at my ability to renovate the property, manage it. Wow. Manage the construction, manage the renovations, manage the interest reserve and all the stuff, you know, do I have the systems and the people and the team to pull that off? Cause the last thing they want to do is just sell it. Right. And they can't, they're not financeable. Right. You can't, you don't finance something. So they are looking for you to operate. Correct. Just to, yeah. So that's the big issue. That's going to be the defining moment for people. This is not about putting money together. This is about the team. This is where we're headed, right? So this isn't about going to a weekend seminar and learn how to syndicate. Like, you know, it's not really, this is, this is, this is going to be. You know, can you, you know, can you do a 30, 40 million dollar renovation right and manage your way out of this scenario for somebody else? Right. And so the lenders or the debt funds or whoever they are, they're looking at the team, the experience, the wisdom. And so if you're new in the game, you can absolutely put those people together. Right. Like obviously, you know, this year at limitless, we're going to have the rooms going to be full of those folks, the people that have, you know, been through it could help, you know, and that would be a, it'd be a great year to put together your team and your dry powder for, for what's next. But just to go out and do it and raise the capital, it'd be very, very difficult because even though you might have the money, they might not want to take the risk. Yeah, that makes sense. And you might not want to take the risk just because you have the money. Yeah. That's true. It's another really good point. Yeah. It's a very good point. Right. Do you think, what about like a smaller multifamily asset? If you're looking at 10, 25, 30 units, like, do you think there'll be distress with smaller investors and like could, you know, someone who's got a small portfolio of small multis take something like that down? For sure. Yeah. I actually, they're all over the place. You know, here's what I would look for. I would look for a small multi operator that did a full renovation and their prices are 30, 40% adjusted. You could step in and buy that thing for pennies on the dollar and, and not have to do anything. Cause they bought, they did the renovation, their debt adjusted. And now they're not covering their cash flow and they got to get rid of it. And even if it's fixed, uh, you know, maybe they fixed and maybe they did all the renovations, but the, you know, the cap rates are up over six now. So they probably bought it when they're in their fours. Yeah. A lot of people. Yeah. So you're talking about two points on an N a Y, even if they have the N a Y. So I think if they're holders, they don't have to worry. Yeah. But if they have any kind of maturity in any way, uh, this is really boils down to the cost of the money. Yeah. Do you know what do you see on this single family? Like, do you, do you have any advice for people who are wanting to get into this market and how do you navigate it? We talked a little bit about negotiating, but any other thoughts? Well, I think there's hesitation. You know, I always, I work with home buyers and I work with really experienced investors and I work with people maybe looking to buy their first investment. And the difference with the investors is, you know, we negotiate a good deal and they take it, you know, and it's cash flowing where my first time home buyers, it's just good advice even for home buyers, first time home buyers and beginning investors, they're like, okay, but if they're so desperate that they're going to go from five 50 to 500, maybe we should just wait and just see, you know, and they always want to wait and see. And you can't do that because you miss out on opportunities when you just wait and wait and wait. Sure. Maybe you're right. And maybe, but are you going to act? If it does go down a little bit, no, because you're going to wait and think it's going to go down further. So you just have to focus on the numbers. And if you're able to cash flow, then that's really all you need. Absolutely. I think for everyone watching this or listening to this, I think the, the key here is that multifamily has distress, probably will continue to have some distress. And that's where you can see these huge discounts and hopefully we'll see a rebound and you'll be able to take advantage of that with residential. The discount isn't there. And even if it comes in the next year, at least everyone who listens to this knows my opinion about this. It might go down a little bit. I don't think we're going to see some dramatic crash in housing prices. And so it's really just about what you said, finding good assets that cash flow. If you find them, the question is, what else are you going to do with your money? You're just going to sit on it, right? And wait. Like if you have something that cash flows in as good asset, it usually makes sense to actually go out and buy that. And just because you're the sellers willing to negotiate with you does not mean if you wait, they're going to negotiate more. I've had so many clients where it's like, I'm just going to wait. And then a few days later, the deal's gone. You know, and you want to have the data and you want to make sure you're cash flowing, but then after that, you just have to just trust and do it. And if you're going to hold it, you're going to be fine. Now, when people come to me and say, I want an investment or to buy a home for five years, and I'm going to move or I'm going to sell it, then now might not be your best time to buy, you know, because who knows what the real estate market is going to be like in five years. But if you're planning on holding it, then you just need to just do it. Yeah. Great advice. Well, that's a perfect example, what Danil and Ken just said of how we talk about looking at data, but grouping things into a metro area, especially in a place as big as Phoenix or LA or wherever you're investing, just doesn't make sense. You really need to dig into individual levels. You can find that data. If you're in the single family space, a lot of it is available for free. You can go Redfin or Zillow, use chat GPT with caution, but you could get some of that out there. It's a little harder to come by in the multi-family space. Usually you have to pay for it, but if you're going to invest in multi-family, go pay for it. Like you have to do it. Data is everything. Honestly, every single move we make is data driven. I love it. Yeah. And you really have to look at even going on Zillow or Redfin and looking at the different rents in the different areas and how many rentals are available in that area. I mean, it's all, you know, everyone always asks my buy box and my buy box is like certain roads, certain blocks. Like it's not this big ever expanding area because you have to look at where you want to be and where tenants want to live. And because of that, I have very low vacancy rates were to Ken's point. Some people to get a better deal, they want to invest way outside of town. And that really works when rents are going crazy and everyone's moving here and everything's booming. But now that things have pulled back, those rentals are empty or they're significantly, you know, discounted because now people can't afford to live where they want to live. And so you see them kind of moving inwards. Exactly. I'll give you a great example. Uh, we have an area like everybody has these old aging malls all over the country. We passed one driving here. Right there everywhere. Right. So where Danielle decided to focus, um, and anyone can do this, um, a big, big developer bought them all. They ripped it down. I'm talking about Macy's, I'm talking about Sears. I'm talking about JC Penney gone. And what did they replace it with? Whole Foods, lifetime fitness, apartments, really cool, edgy, you know, uh, outdoor concept. I really, yeah. So it's because it's not very often you can buy a big chunk of town. Yeah. Right. So, so she's like, this area is going through a resurgence. Yeah. So she's been focusing, you know, within several blocks, uh, of that. And that's, she's bought two properties over there. Yeah. Mm hmm. Yeah. And it's just paying attention. That's it. Like it's just, you know what I mean? It's going on everywhere. It's just paying attention. But it's important if you're going to buy in an area that you don't live in, that you have someone really knowledgeable about the area, because like, if you're not from Phoenix, you're not going to really understand it. And I see investors do this a lot where they find a good deal with maybe a real litter or somebody that doesn't know a lot about the area. And then, you know, now they have this rental that doesn't rent what they thought it was going to rent for it's in a bad area, even though three blocks up might be a great area, it can be that new one. It really is. That's the job of the investor, right? Like that is the research that everyone should be doing. And even if you have a great agent, like go learn these things for yourself. It's why I always recommend if you are investing out of state, go visit. I know it again, it's, it's a thousand bucks, but whatever, go do it. You will learn more in those 24 hours than you do months sitting on Zillow or listening to me blab on the podcast. Like I promise you, you will go learn more doing that. And you just get the vibes. Like the data is important, but you can see like, Hey, I want to invest in the zip code. But when you go drive around and see it, you'll understand. And the other thing that you mentioned, Danille, it's so important is that it, it changes really quickly too. Sometimes like if you're looking at rental vacancies or where the supply is, or, you know, you might find out about this mall being redeveloped. And if you're two months late on that, people like Danille, who are smarter, going to know to go buy that. So it's something that you have to continuously pay attention to. It's not like it takes that much work, but it is something that you need to build into your process as an investor when you're going to acquire things. But I also think, you know, when you hear of, I always tell my clients, like, I hate the word up and coming areas, cause I just hate that. Cause to me that just means edge of town, you know, there may be building some new homes down there. But what you really have to look for is, is somebody putting a lot of money into an area to make it up and coming. Cause to me, like, just cause they're doing a lot of new development and it's far out, once again, you get into that same thing. People like to move towards the center of town if rents get cheaper. So I like to look at where's somebody putting a lot of money, like where's Whole Foods investing? Where are they putting a ton of money that they're expecting this area to grow? Cause that's the stuff that actually moves the, the needle on home prices and rents. Yeah. My theory, when I first started, I started investing in Denver, it was booming. And my whole philosophy for like 10 years was just how close can I get to the center of town with a good asset, like something that's good quality, get as close to it. And Denver's gone through a big correction right now. It's not doing well, but my property is they're, they're in that inner core circle. It might not have been the most units, but they're still doing fine. Yeah. And I, I think that's what you see. Historically, if you look at the data, the pattern is always, people are going to move if every rent comes down and you're afforded, your paycheck stays the same, you're going to go take the nicer apartment with more amenities in a better place. Uh, and I think that that's the opportunity right now is like prices are coming down on these good assets. If you want to buy them and hold them for 10 or 20 years, like this is, I'm seeing better quality assets, even if the prices are still somewhat flat, the quality of the assets is getting better, at least in the residential. And you have more negotiation. Like if there's stuff on the inspection, you can negotiate that were a few years ago, it was just pound sand, you know, so you have to look at all this stuff. And to your point, like if you find an asset, like always like the cheapest asset in the best area, right? You know, when people are turned off by that guy, this house isn't that nice. I'm like, yeah, but the nice house that you want surrounded by crummy homes, that's not going to rent well. You know, what's going to get all these tailwinds. Right. Like what's going to rent so good is this little house. It's the cheapest house. You know, people always told me, don't buy two bed, two baths. They're going to be two bed, two bath homes are going to be so hard to rent. Well, that is three out of the five of my portfolio and they run amazing because guess what? A single parent with two kids will rent that all day. They get to be right in the heart of Scottsdale and they can afford it. And if they want to go up to three bedrooms, it's expensive and people don't have the money right now. Yeah, it's true. If you just put yourself in the mind of the tenant, right? Everyone decides where they want to live. Most people decide where they want to live, what neighborhoods before they decide on the unit. And so if you're in those out of, you know, sort of tertiary areas, like you don't even get in the search when they type in Zillow, right? Like they're not even going to be in there. They'll, most people for convenience, for schools, for whatever, choose that first and you want to be in those good areas. Yeah. And people are, you know, they're on budgets right now. So, you know, before everyone had a bedroom and it was really important. And now, you know, talking to single parents, it's like, no, like if it saves me 500 bucks a month, my kids can share a room. You know, it's not as big of a deal when people are limited on their budget. Yeah, for sure. All right. Well, thank you both so much. It's been long overdue to have you both here. This is awesome. When, if people want to learn more from you both, where should they do that? Well, we have the Ken McElroy show, which is a podcast and on YouTube. And we go live every Monday and we have a podcast every Thursday. And then also, if you go to kenmacoroy.com, we have a subscription for $10 a month. You can subscribe and get a bunch of great content. Great. Well, Ken, Danelle, thank you guys so much for being here. Thank you. Thank you. And I'm soon going to be on the Ken McElroy channel as well. So make sure to go there and check it out. Thanks so much for listening to this episode. We'll see you all next time. The content of this podcast is for informational purposes only. All hosts and participant opinions are their own investment in any asset. Real estate included involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. Bigger pockets. LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.